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GDP - Income Approach
GDP - Income Approach
GDP - Income Approach
Review
Gross Domestic Product (GDP)
Macroeconomic Variable Total Output
Everything that is produced within the territorial bound of the country in a given period in time
Expenditure Approach
Income Approach
Output that producers produce during a period in time. Calculates Market value of Goods and Services produced.
Measures what everybody spends in the economy Calculates the final spending on goods and services.
These three approaches are equivalent, with each rendering same results.
Expenditure Approach
Income Approach
Expenditure Approach
Income Approach
Rental Income Proprietors Income Corporate Profits Net interest Compensation of Employees:
Wages compensation for labor for a short period of time. Salary payment for labor in a longer period of time. (ex. Monthly salary).
Income Approach
Rental Income Proprietors Income Corporate Profits Net interest Compensation of Employees (wages / Salaries)
Income Approach
It is important to recognise that only those incomes that are actually generated through the production of output of goods and services are included in the calculation of GDP by the income approach.
Income Approach
We exclude from the accounts the following items:
Transfer payments e.g. the state pension paid to retired people; income support paid to families on low incomes; the Jobseekers Allowance given to the unemployed and other forms of welfare assistance including child benefit and housing benefit. Private transfers of money from one individual to another. Income that is not registered with the BIR. Every year, billions of peso worth of economic activity is not declared to the tax authorities. This is known as the shadow economy where goods and services are exchanged but the value of these transactions is hidden from the authorities and therefore does not show up in the official statistics. It is impossible to be precise about the size of the shadow economy but some economists believe that between 8 15 per cent of national output and spending goes unrecorded by the official figures.